Question

Alamos Co, exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000 respectively. Assuming that the exchange has commercial substance, Alamos would record a gain (loss) of:

26,000

8,000

<8,000>

0

Prepare the journal entry for the above transaction.

Answer 1

Gain on tranfer of old assets =  fair value of the old equipment - book value of the old equipment

$90,000 -  $82,000 = $8,000 (ie option B)

Note : When exchange have commercial substabce , we need to record the gain arising from tranfer of old assets

Jounral Entry

Accounts Titles & Explanation	Debit ($)	Credit ($)
Equipment - new [ Fair value + Cash]	108,000
Cash		18,000
Equipment - old [Book value]		82,000
Gain on tranfer of old asset		8,000